It is easy to assume that the larger companies you supply are able to pay for the stock they have received, says Rayner

As UK businesses face pressures from consumer spending, supply costs and other macro-economic effects, the likelihood of retailers and distributors facing bankruptcy is unfortunately increasing.

Yet so often once trading has started, many suppliers – especially smaller brands with limited resources – don’t take the time to watch out for risks with their own customers.

It’s understandable, given the pressure for brands and manufacturers to deliver sales is higher than ever. If you are a premium brand – especially a challenger one – each and every order is an achievement in today’s climate. It is easy to assume that the larger companies you supply are able to pay for the stock they have received.

The recent collapse of distributor Tree of Life has been tough for its staff and very difficult for anyone sourcing products from it, but especially painful for its hundreds of suppliers. In the past few weeks, dozens of small and independent brands have taken to social media to voice their disbelief at the loss of stock that has been delivered, but not paid for, as Tree of Life moves into administration.

When your stock is spread across multiple customers, and you have strong working capital with a regular flow of orders, losses like this can be absorbed. But for a distributor like Tree of Life, which has many fledging start-up businesses heavily reliant on it for distribution and fulfilment services, this is a hard lesson to learn.

I remember working hard to get listings with Mothercare, which at the time was a powerful high street destination for new parents and a great fit for the baby brand I represented. Everything was going well until they asked for 14% in payment terms for payment in 90 days. As much as we wanted our brand represented there, we turned them down. Just a year later it disappeared from the high street – taking a lot of unpaid invoices with it.

As all businesses face into exceptional pressures at the end of this year, it is an important reminder for all brands to take the time to assess the status of their customer base and take steps to protect themselves.

Firstly, which customers are you most reliant on? Having one major customer is always a risk, no matter how big it is. Not least from a negotiation standpoint, but certainly from a credit risk perspective. Make sure your customer base is as diverse as possible, even if that means a mix of customer sizes and commercials.

Secondly – and especially if you can’t help but rely on one or two big accounts –  make sure you’re doing your due diligence. This should be not just at the start of a trading relationship, but a continual process. Check their accounts each time they are published. Run credit reports regularly or have alerts set up with credit agencies. Watch out for missed deadlines with Companies House, or sudden ‘one-off’ events within their accounts. Keep an eye out for news relating to redundancies, staff changes, senior team members leaving or cashing in shares.

Thirdly, don’t get blinded by orders. If a business suddenly changes order patterns, ask them why. Don’t be afraid to split orders or demand payment upfront. Try to match sales data to orders, put in a process to ensure credit limits are respected and retailers are paying on time.

And always follow up on your instincts. If your buyer is no longer answering the phone, a payment is late or the CEO has skipped the country, do some digging. It’s better to have stock in your warehouse to sell than a PO that will never be paid.